Elecon Engineering hosted a
conference call on May 11, 2022. In the conference call the company was
represented by Prayasvin B. Patel, MD
& CEO and Narasimhan Raghunathan, CFO.
Key highlights of concall
Gears order backlog as end of Mar
31, 2022 stood at Rs 410 crore with order inflow in Q4FY22 being Rs 212
crore. Subsequently in April 2022, the gears
business has bagged orders worth Rs 134 crore.
MHE business order backlog as end
of Mar 31, 2022 stood at Rs 127 crore with order inflow during Q4FY22 being Rs
114 crore. This order book will be
executed over next 7-8 months.
Continue to focus on cost
reduction, optimum utilisation of capacity and improvement of efficiency.
MHE Legacy Project completion
status – Pending work of all three legacy projects out of which balance amount
for one project already received. Documentation for balance two projects are
under progress and expected to be cleared in FY23.
It has successfully completed one
of the most complex & sophisticated defence gear box, as a part of “Made in
India” initiative.
The MHE business of the company
is exploring new growth avenues to augment capacity utilization.
Arbitration award worth Rs 63+
crores granted in company's favour, against which customers have pursued
further appeal. Recently, the Company has received a favourable judgement by
the Court for one of the appeal.
Overseas operations: All overseas
entities have made profits despite the impact of Covid-19 pandemic. Witnessing
positive momentum in the order intake and revenue in the US, Latin America and
Canada operations. Improved market reach in USA, Canada and Latin America. Fully
repaid debt and other facilities in overseas entity to the tune of Rs. 95
crores in FY22. The Company is taking efforts in expanding footprints like
Latin America, Africa and other countries by pursuing global branding and other
marketing and business development initiatives. Overseas entities reported an
EBITDA of Rs 18.2 crore on a sales of Rs 86.8 crore. Expect further improvement in profitability
going forward.
Demand environment continue to
improve. Both Gears and MHE segments are expected to
gain from robust demand from mining, steel, power and other infrastructure
industries. Proposed increase in the outlay for capital expenditure by 35.4%
from Rs 5.54 lakh crore in the current year to Rs 7.5 lakh crore in 2022-23
augurs well for the engineering industry. The PLI scheme by Government is going
to boost the domestic manufacturing output and in turn provide tremendous
growth opportunities to the Engineering industry. GOI has announced Rs 1.45
trillion worth of Production Linked Incentive (PLI) scheme in manufacturing
industry with an aim to make it globally competitive and that also to boost
demand for engineering industry.
The company has set a standalone revenue
target of Rs 1500 crore by FY24.
The company has formulated
strategies to improve exports contribution with a target to reach 50% of the
overall revenue by FY30. Currently exports account for about 10-12% and the
company target to take it to about 15-17% by FY23 end. See more export enquiries coming and thus the
potential. The company is accumulating good reference in USA that will increase
exports to USA going forward and similarly the customer in Latam for whom the
company is extremely satisfied with the gears of the company.
Considering the long lead time
for key machineries, the company has initiated Capex plan of Rs 100 Crores over
a period of two years. This capex will be fully funded through internal accruals.
The company continues to
strengthen the balance sheet by way of reducing debt and other liabilities and
is working towards becoming a net debt free company by 2023. Interest cost for FY23
will be substantially reduced and is expected to be about Rs 12 crore. With exports on rise there will be increase in
working capital going forward even though term debts are retired.
New orders bagged by MHE are of
products and with good margin and good payment terms. So apart from revenue growth the profitability
of MHE will improve going forward. The company expect the EBITDA margin of MHE
business will be about 15-20%.
Expect 30% plus growth in gears
business for FY23 with further improvement in margin. Current order book is with healthy margin and
will be executed in next 5 months. Increased
utilisation of assets will also boost margin going forward.
No further cost overrun is
expected at legacy MHE projects as execution is completed. The company has to
complete the process of exit from the project which is underway and once that
is done the pending retention money of Rs 100 crore will be received from
customers.
Gear division capacity utilisation
is currently at about 65%.
Expect to receive retention money
on MHE legacy projects by Sep 2022 or by end of current fiscal.
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